Question

Have you ever been involved in a lease-or-buy decision at work? In your personal life? Please describe this situation and be sure to include the following information: What factors went into making the decision to lease or to buy? Was the decision made in a formal reporting format or as an informal decision? Do you think this was the best way to make the decision? If not, what would you change? Why? In hindsight, do you think that you made the right decision? Do you think that you made the cost effective decision?

Answer 1

I have faced A lease or buy decision at my workplace when the old machine became obsolete and the new machine was required to continue production. The first and foremost factor that went into the decision was the availability of the machine on ease and the cost of the lease. The cost of the new machine was the other criteria that was important to this decision. Since the machine was to be imported this involved factors such as exchange rate and transportation cost along with the purchase price. The operating costs of both the Machines as well as the production capacity of each were the other criteria that affected the decision. The depreciation rates and tax saving on depreciation along with tax saving on the lease amount were The Other factors that went into this decision .

This decision was a highly formal decision and required detailed analysis and comparison of both the options. Moreover it necessitated the use of multiple capital budgeting techniques such as i r r and npv. This was the best way to make the decision since the entire functioning of the business depended upon this decision. In the end the correct decision was made since the estimated discount rate that was used in the decision making process was the actual cost of capital of the business. The option that entailed the least cost was finally selected.